Real estate is responsible for creating more millionaires than any other industry. If you think you need your own money and tons of experience to get started, think again!
Mastering the skill of raising money is truly necessary to grow & scale your real estate investing business to new heights, which is why Stan Gendlin & Alex Martinez created this article – just for you.
Successful Real Estate Investors, Stan Gendlin & Alex Martinez, have raised over $150 Million of OPM (Other People's Money) to wholesale, fix & flip houses, AND buy cash flowing property investments. Having the ability raise money for real estate deals has allowed them to start & grow multiple 6, 7, & 8-figure real estate investing businesses.
Whether you’ve never done a real estate deal, or have done 100+ deals and raised $100 Million, you will get tremendous value from this article.
You got this – even if you’re starting from scratch! Let's begin...
One of the biggest mistakes I ever made in the beginning of our business was thinking if I just talked about my real estate investing companies and posted it on social media, people would be begging to give me money for deals. Well, guess what? The money never came pouring in! It wasn’t until I took a different, yet direct approach to raising capital that then the money came flowing in!
Don’t make my mistake and just tell people what your business does…what you need to do is explicitly tell people you’re looking for more investors & that investing with you is a great opportunity.
See, when we finally started talking to people about our direct need for more capital, the doors swung open and the money finally did come pouring in. So be sure to post on social media about that you’re raising money for real estate deals. Post about the great money you are able to make from real estate deals, and post that you would love to have more investors lend or partner with you to make great returns, as well.
Also, start asking people you are involved with in the real estate business - such as: realtors, lawyers, insurance people, commercial agents, appraisers, and pretty much anyone involved in real estate - that you have and/or are building a real estate investing business and need investors who want to lend with you and make great, safe returns. Talking to your real estate network is the best place to begin because a lot of these people are already familiar and comfortable with real estate transactions, thus making them the easiest to raise money from!
When you meet a lender, whether they are a Private Money Lender, Hard Money Lender, Banker, or Joint Venture Partner, they will pick up rather quickly if you know what you’re talking about and have done this before. Make sure you go into each conversation knowing how to sell yourself, your business, and are comfortable with the idea of others giving you money. Most lenders who lend on single family real estate investments, don’t lend because of a good deal - they lend because they feel comfortable with the borrower. Your confidence, ability to speak intelligently on the business model, and showing you understand how the transaction works is much more important to a lender than your level of experience and cash in the bank.
Be sure to always inform your private money lenders of the 3 Levels of Security you provide with each real estate deal.
The 3 Levels of Security Are:
1) The Mortgage.
No one can take any money from the sale of the property until the mortgage is paid off first. This means that the lenders (those you raise money from) will be paid back first before you see any profits.
2) The Promissory Note.
This shows them you are promising and willing to pay them their money and interest on the deal regardless if you make money or not yourself.
3) The Insurance Policy.
If something happens to the property such as a fire or terrible negligence by the contractor, the investor will be able to get their money back from the insurance policy.
In conclusion to this "DO" of raising money, you need to learn how to sell yourself first before talking to any investors for your real estate deals! This is most important & knowing the 3 Levels of Security will help you do this!
When trying to get & raise money for a specific real estate investment deal, make sure you have all the details figure out and packaged nicely in the form of a deal summary. The summary should include details about the property, the size, current condition, bed and bath count, square footage, photos of the property, a scope of work, and detailed budget that explains what you are going to do to the house. There should also be at least 3 real estate comps explained in detail why they support your valuation for the house you are buying. If you’re working with a new real estate investor, or an investor not familiar with the area, be sure to explain as to why you are buying in this neighborhood and whit this neighborhood or city is a good investment.
The Real Estate Investment Deal Summary should also have a detailed breakdown of the deal numbers, how much you are buying the property for, the cost of the renovation, the expected holding costs, the sales price, and what you expect the profit to be. Also, it is extremely important to dedicate a section showing what terms you are offering to an investor and why that is a good rate. A few examples of this would be: it’s a low risk deal, it’s already under contract with an end buyer, because you are experienced, or your partners are experienced. Finally, show the investor how much money they will be making with you once the investment is completed!
This rule applies specifically if you are working with new lenders on a real estate deal whether they be Hard Money, Private, Bank, or Joint Venture Partners. Any time you are working with a new lender, they will always take longer at first to get you approved and get a deal closed. Sometimes the delays are extremely long and can cause you to not close on your deal. Make sure you have several back up plans (i.e. multiple lending sources) when you are funding a deal with a new lender to ensure you don’t lose a deposit or any relationships!
The moral of this principle is that you should find different financing sources, whether they be Private, Hard, Banks or JV Partners and see what it takes to get approved with them before putting a deal under contract with no way of funding it. If you have your financials in good order and are extremely organized, it should be easy to get approved with one of these lenders. Also, if you are able to find a strong, safe deal and have your financials in order, lenders will fight each other to give you money for the deal!
I cannot lie and say I have never come off like this when raising capital, and let me tell you it has never worked. When I first started flipping houses, I put too many under contract and was afraid of spreading ourselves thin with hard money loans. I called several people I knew and asked them to lend on my deals and when some of them showed some initial interest, I followed up too aggressively and never was able to get a single loan!
Don’t get me wrong, you definitely need to sell someone on lending to you, but if someone is not ready or comfortable, exerting an undue amount of extra pressure will only scare them away. The best strategy I use is the walk-away. Meaning, if someone is not comfortable lending money for a real estate deal at this time, then I walk-away and come back to them later. No need to force it!
If someone doesn’t want to lend after they said they would be interested, I put them on the next email blast highlighting our other investor’s success who we did raise money from. Guess what usually happens? The lender that I walked-away from comes back wanting to invest with me because others already took the risk and survived. But this time when they come back, they will get a lower interest rate because the high-risk takers came in first and got better returns.
One of the biggest mistakes I see new investors make is being too aggressive on closing timelines when they don’t have everything lined up to close. If you over promise a closing timeline to a seller and then go to a new lender with a short timeline, many of them will simply turn you down because they’re not trying to close your first loan on such a quick timeline. This also goes hand-in-hand when wholesaling, we get many new wholesalers that over promise a quick closing to sellers and then push us to close in a week when our lenders may need at least 2 weeks to close a deal, or our closing attorney might be backed up on getting title and not be able to close the file that quick.
Whether you are a new investor or seasoned investor you have to treat each lender, especially private lenders, with extra care. It doesn’t matter if you are in an expensive market or a cheap market, even borrowing $50,000 from a private lender can be most, if not all of their savings! So you need to understand where their mindset is coming from and respect the fact that they may need some time to make a decision to give you money.
This is the last, but most important principle. Sometimes when the real estate market is going well, new investors & lenders will throw their money at anyone willing to take it for a deal. I personally know people that took more money than they could handle. This led to them getting overwhelmed and falling behind on projects, and even led to more money needing to be borrowed to cover overages on previous projects.
Understand what kind of projects and deals you can handle and how many of them you can handle at once. Growing is important but growing at a manageable pace is even more important. Don’t get too big for your own head and end up owing a ton of money for projects you can’t complete. If you are a new borrower, lenders can require you to personally guarantee these loans, meaning you can literally lose it all if things go south and the market changes, or you mishandle a project.
This is why it’s important to learn from my previous mistakes as you move forward! From our decades of experience, these are tried and true principles for raising capital for real estate investment deals!
Time to raise that money to grow & scale your real estate investing business! Cheers!
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